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Sunday, February 15, 2009

Three Wall Street Journal articles have appeared in the past two days, outlining a probe into the Stanford Financial Group, which owns the bank that reneged on financing HSS's purchase of Emageon.

The story from Friday, February 13, notes that Stanford is being examined by the SEC, the Financial Industry Regulatory Authority (FINRA), and the Florida Office of Financial Regulation.

The focus of the probe isn't clear. Mr. Stanford's firm offers many financial services, chief among them wealth-management services, and markets certificates of deposit through his offshore bank, Stanford International Bank Ltd., in Antigua. The CDs offer unusually high and consistent returns. Mr. Stanford controls both the bank and the financial group that markets the CDs the bank issues.

By Valentine's Day, yesterday, WSJ reported that the FBI had entered the probe. It seems that Stanford Financial Group had recently been telling its depositors that they couldn't redeem their CD's for two months. Sir Allen emailed his customers, telling them that he had been "infusing cash" into the Antigua-based Stanford International Bank, Ltd. How did Stanford reach the FBI's radar? It seems that like our old pal Bernie Madoff, some of Stanford's returns are too good to be true given the investments he claims to have made:

Stanford Financial Group previously has been in the sights of various regulatory and law-enforcement agencies, according to the people familiar with the matter. Those people say the agencies now are focusing on certificates of deposit, which are marketed by the financial group's wealth-management arm and sold by Mr. Stanford's Antiguan bank. The CDs offer unusually high returns; for example, as of Nov. 28, a one-year, $100,000 CD paid 4.5%.

"The first thing that grabs your eye is the business model," says Alex Dalmady, an analyst who unveiled concerns about Stanford International Bank in the magazine VenEconomy Monthly but isn't involved in the investigation. "Taking deposits and playing the stock market -- this is way too risky. "

Stanford's Web site says that the bank has invested in a diversified portfolio including stocks, while banks generally make money by lending. A memo on Stanford's Web site says that the bank has never made a structured loan or a commercial loan. . .

"We want our depositors to know that SIBL had no direct or indirect exposure to any of Madoff's investments...Also, SIBL has never made a structured loan or a commercial loan. All loans are cash secured and to SIBL clients only at a maximum 80% loan to 100% cash collateral ratio."

Now here is where it gets interesting. A second WSJ article from February 14, 2009, tells us:

An offshore bank at the center of two U.S. federal investigations recently curtailed financing commitments to two small American companies, regulatory filings show.

Stanford International Bank Ltd. of Antigua recently failed to provide some $16 million in funding to a small Florida telecommunications firm, while a small Alabama health-care firm said it was unable to complete a roughly $62 million merger after funding fell through. Stanford International had previously planned to provide funding to complete the deal, according to the health-care firm.

It was understood that Stanford was funding Health Systems Solutions' bid for Emageon. But the true relationship appears to be a little deeper:

Stanford also owns a majority of the shares of Health Systems Solutions Inc. of New York City, which is traded on the OTC Bulletin Board. In October the firm agreed to acquire Emageon Inc. of Birmingham, Ala, but the deal was terminated Friday with Emageon attributing the development to Health Systems' inability to obtain funding on or before the closing deadline of Feb. 11. Executives of Emageon couldn't be reached for comment and Health Systems executives didn't respond to requests for comment.

Hmmmm. Interesting. As an aside, Stanford had a similar relationship, and a similar deal-retraction with Elandia International, a communications firm:

The Florida firm losing $16 million in financing from Stanford International is called Elandia International Inc. of Coral Gables, which trades over-the-counter on the so-called pink sheets. Elandia says it controls a collection of small telecommunications firms in Latin America and the South Pacific. Regulatory filings show that the Elandia's chief financial officer is James M. Davis, who is also chief financial officer of both Stanford International Bank and Stanford Financial Group.

Efforts to contact Elandia executives by phone and e-mail were unsuccessful.

In a new SEC filing, Elandia also said Stanford International Bank had also agreed to convert an outstanding $12 million loan it had made to Elandia into shares of Elandia equity. Such debt-equity swaps often take place when borrowers lack the cash to pay loans back.

Since Emageon got their $9 Million payoff for the deal's collapse (I assume the check cleared), they came out of this "merger" better than they might have had it actually gone through. I have just two words of advice, though: due diligence..... Someone should have had a deeper look into the inner workings of HSS and Stanford. But I guess it's rather rare for people about to get married to look deeply into anything but the eyes of their beloved.

5 comments
:

Anonymous
said...

I love your blog - this latest saga with this merger is as good as the movie "The Firm" - it just wreaks with greed, drama, conspiracy, etc. I always wondered why would Emageon agree to be bought be a company who was losing money, not to mention whose revenues were lower than Emageon? I agree with your assessment that they were too in love with the prospect of being bought - not exactly wanting to know the ins and outs for who is buying them, why they were buying them and HOW they were going to be bought.... Lessons learned all the way around... Good and Entertaining blog.

I think EMAG knew that their suitors were not exactly the typical definition of "solid"; no way one would not know that in a transaction like this. "Why" they chose to move forward with this particular company and its bankers is a question that EMAG's management should answer.

Stanford raided by the FBI and charged with massive fraud.... Something tells me that Emageon won't be able to claim complete innocence in this web of deceit either....that $9MM escrow payment had to be funny money - just a thought... My other question is HSS- this all but means they will file for bankruptcy I would think if Stanford owns 61% of their firm? What happens to their client base? This saga and fallout is far from over....

Emageon did not make the decision on their own to approve the aquisition by HSS. There is a board of directors withs seats held by large institutional investors of Emag stock. These rules apply to all publicly traded companies. To that end, the only relation Emageon has left with Standford is the 9M they walked away with. I say they protected themselves well and I expect another suitor is already lined up.

Beware of FLORIDA PONZI SCHEMERS like Sir Allen Stanford, Sidney Donald “Trip” Camper III, and Edward Berkhof whom prey off of innocent hard working people. These criminals use name dropping, stamped passports, falsified tax returns, and donations to St. Jude’s to gain trust and power over these private companies with aspirations to go public. According to SEC files, Sidney Camper was fired from Elandia Inc. by Allen Stanford himself when a Sir Ahkoy and his family (see link below) became victims of investment fraud. Sidney Camper then went on to his next victim (an otc company in Los Angeles) and with the help from his new partner in crime, Ed Berkhof, ruined this honest, profitable company by tricking them into thinking that Sidney Camper and Ed were going to take them public. After forming a holding company, opening secret bank accounts, falsifying tax documents, and a free trip to England for Sidney and his friends, Sidney Camper and Ed Berkhof proceeded to ILLEGALLY sign over enough otc company stock shares to themselves to gain company control and ultimately perform a hostile takeover. Instead of working to take the otc company public, Sidney Camper and Ed Berkhof pretended to be owners of the otc company AND used the otc company’s assets to get OTHER people to loan THEM money = PONZI SCHEME!!!! Beware of these smooth talking criminals like Sir Allen Stanford, Edward Berkhof, and Sidney Trip Camper. Although Allen Stanford is in the hands of the FBI now, Sidney Camper still lists the Stanford Group on his curriculum vitae! Sidney Camper also lists Danny Bogar, President of Stanford Group Holdings as a reference. I hope the IRS/FBI stops these criminals once and for all!